The last COVID-free Australian Open (in 2020) contributed close to $400 million into the Victorian economy, which was a record for the event. Crowd restrictions, the lack of international visitors and various social distancing requirements in 2021 and at this year’s event will mean that we will have to wait until 2023 to see that record broken.
Australian Share Market (ASX200) – down 0.80%, snaping a 3 week winning streak. Offshore leads were mostly weaker with the main drag coming from the growth cohort. The Materials sector (+4.67) led the gains and is up 8 weeks in a row with Chinese inflation data moderating more than expected during the week, opening the door for further monetary policy easing in early 2022. Energy (+4.1%) and Utilities (+3.57%) were the only other sectors to finish the week higher. Consumer Staples (-5.54%) led the declines followed by Info Tech (-4.64%) and Consumer Discretionary (-4.53%). Rising bond yields again weighed on the higher P/E sectors of the equities market while omicron impacts weighed on the Consumer sector. Consumer Staples were struggling to keep their shelves fully stocked as some distribution centre staff are being struck down with the virus or have to isolate as close contacts putting further pressure on supply chains. For Consumer Discretionary, although governments have resisted imposing lockdowns, it seems many people are staying home and avoiding retail and hospitality venues in what retailers are referring to as a “shadow lockdown” that is impacting sales and economic activity early in the new year. Prior to this though, retail sales were booming with November’s retail sales data last week hitting a new monthly record of $33 billion, jumping +7.3% from the prior month and smashing expectations for a +3.9% increase.
US Share Market (S&P 500) – down 0.30%, with the Dow (-0.88%) and Nasdaq (-0.28%) also lower for the week. The Energy sector (+5.22%) led the gains again this week, boosted by a +6.2% weekly gain for the oil price. Communications Services (+0.52%) was the only other sector higher. REIT’s (-2.02%), Consumer Discretionary (-1.47%) and Utilities (-1.40%) lead the declines. The headline Consumer Price Index for December came in at +7% for the year, the highest year on year increase since 1982 and sent the US 10 yr. treasury yield to new pandemic high of 1.80%. Market participants now fully pricing in 3 rate hikes from the US Federal Reserve in 2022, with the first one expected in March. On the fiscal policy front, negotiations on President Biden’s $1.75 trillion Build Back Better social spending bill have broken down, increasing the chance that this key policy initiative may not be going ahead. Although investors were initially buoyed by the milder symptoms associated with the latest variant, Covid outlooks tilted more negative during the week as several companies mentioned the high number of cases is impacting on workforces with thinning staff levels across a range of industries. The US Q4 earnings season got under way on Friday night with key Bank sector reporting. Current expectations are for another +20% increase in earnings from S&P 500 constituents, the fourth quarter in a row of +20% growth in what is a phenomenal period of earnings growth for US companies with investors likely focused on the record high profit margins and on any waning in company’s ability to continue passing on the higher input costs.
Volkswagen (VOW3) 2021 car deliveries fell on semiconductor shortages as electric vehicle sales double. Volkswagen delivered 8.88 million vehicles to customers around the world in 2021, 4.5% fewer than in 2020 despite high customer demand and full order books as the semiconductor shortage impacting high tech manufacturers is persisting into 2022. They sold 452,900 battery-electric vehicles (BEVs) in 2021, a huge +96% increase on 2020 with the group the clear leader in the BEV market in Europe (and number 2 in the US). Volkswagen are currently projecting that by 2030 1 in 2 cars sold worldwide will be purely electric. The head of Volkswagen group sales Christian Dahlheim stated “The doubling of our battery-electric volumes and the high demand for all our vehicles clearly show that we are on the right track. This is something we will build on in the current year and continue to drive forward our transformation.”
VGI Partners (VG1) confirms media speculation regarding a potential merger and are having preliminary discussions with a number of parties, including Regal Funds Management, in relation to a range of potential transactions. VGI Partners has a good reputation for their long/short equities strategies and is held in the investment portfolio as part of our alternative assets allocation. The Net Tangible Assets of VG1 is $2.28 versus the latest share price of $2.03 and is likely any deal would go some way towards closing the current valuation gap.
CVS Health (CVS) raises full year earnings guidance, again. CVS Health increased their full year earnings outlook for 2021 in what is a strong finish to the year. 2021 earnings per share is now expected in the US$5.87 – US$ 5.92 range, up from US$5.50 to $5.61 that was also upgraded just a couple of months ago. Guidance for 2022 was reiterated. The company continues to attract customers to their stores and pharmacies with covid tests and vaccines and convert opportunities to cross sell other kinds of health care services. Some encouraging comments from the CFO Shawn Guertin who mentioned “the omicron-fuelled surge of Covid cases so far appears to be leading to less medical care and fewer hospitalizations.” This welcome development is also driving lower costs for CVS’ health insurance business. The stock hit a new 52 week high on the news.
The week ahead
Domestic data this week includes Westpac Consumer Sentiment on Wednesday and Employment figures Thursday while BHP and Woodside will provide quarterly trading updates on Wednesday.
Internationally, we have Chinese GDP today, CPI for the UK and Germany on Wednesday night, Eurozone CPI Thursday night and Japan CPI on Fridays night with Bank of America reporting Q4 earnings on Thursday morning.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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